Usefulness of banks financial reports in a time of crisis: evidence

from corporate customers of banks in Finland

Siiri Sofia Antturi

Table of contents

1. Introduction..........................................................................................3
2. Literature review..................................................................................6
2.1. Objectives of financial reporting.........................................................................7
2.2. The role of useful financial reporting in crisis....................................................8
2.2.1. Complexity and understandability................................................................8
2.2.2. Reliability and relevance..............................................................................9
2.2.3 Fair value accounting..................................................................................12
2.3. Financial regulation responses .........................................................................14
2.4. Transparency and disclosure.............................................................................17
2.5. Conclusion.........................................................................................................19

3. Research methodology.......................................................................21
3. 1. Research Approach...........................................................................................21
3.2. Data source........................................................................................................22
3.3. Data collection...................................................................................................22
3.4. Data analysis......................................................................................................24
3.5. Conclusion.........................................................................................................25

4. Data presentation and analysis.........................................................27

5. Conclusions and discussion................................................................40
6. Appendix ............................................................................................51
6.1. Survey questions ..............................................................................................51
6.2. Closed question results......................................................................................53
6.3. Open question results........................................................................................54

1. Introduction
How has the usefulness of financial reports fared through the financial crisis? This is
the question that this research aims to answer. This research will discuss the characteristics of useful financial reports, how they have come under question during the financial crisis and what remedies can be implemented. The research presents a survey
of 30 employees of corporate customers of banks in Finland and discusses their views
of how the usefulness of financial reports has fared in the financial crisis.
The financial crisis is still on the minds of many as it has yet to pass in some countries. Most recently Portugal has suffered greatly because of the fluctuations in the
financial world. The crisis started in the U.S. when sub- prime mortgages started defaulting due to falling house prices and rising interest rates. As information about
these bad loans spread to investors, credit markets froze, which in turn lead to a shortage in liquidity. Several financial institutions were bailed out by governments and nationalised (BBC 2009).
In Finland the financial crisis hit the export industry most harshly. As Finland's business partners fell into depression, so too did the trade between the countries. As a
country much reliant on exporting, Finland has suffered in many ways during the financial crisis, for example through greater unemployment. One of the reasons for the
downturn in exports was the poor availability of credit from banks whose solvency
and liquidity had come under question. Perceived solvency and liquidity in turn derive
from financial reports, which were criticised as being unreliable. Finland has then
been affected by the same alleged shortcomings in reports even though the country's

financial sector benefited from its stable pre-crisis position and was less affected than
other countries' financial sectors (Freysttter & Mattila 2011).
Financial reporting in public companies in Europe is regulated through the International Financial Reporting Standards (IFRS), which are developed by the International
Accounting Standards Board (IASB). In the U.S. the similar standards are the U.S.
Generally Accepted Accounting Practices (GAAP), which are managed by the Financial Accounting Standards Board (FASB). There is an on-going process of convergence between the two, which is promoted by the U.S. Securities and Exchange Commission (PwC 2010). Because of the unity of the financial reporting standards, the
changes that are made apply to almost the entire world. The crisis has therefore affected financial reporting globally because it exposed problems in the system that
when rectified, will affect all those working with financial reports.
Financial reporting for banks is the same as for other companies but when an
economic downturn comes about what happens with banks can aggravate or even
cause a crisis (Turner 2010). Therefore, even though financial reporting standards and
objectives are common for most companies, banks are at the centre of attention
because of their role in the event of a crisis. Because of their central role in the crisis,
the research will concentrate on the effects of the financial crisis on the usefulness of
banks financial reports and, in turn, their effect on the confidence of their users.
In the current crisis banks have certainly experienced a loss of trust. Sapienza and
Zingales (2009) studied the general public's trust in financial markets in the U.S. and
concluded that the primary reason for a loss of trust is the decrease in stock market
valuations. In their study they presented respondents with six options for determining
what the primary cause for the financial crisis was in their minds. 36% said manager's
greed, 11,2% answered excessive government intervention, 16% said lack of

oversight, 15% chose poor corporate governance, 15% answered lack of regulation
and 6,7% said global imbalances.
According to research done by Ernst and Young (2010) banks are continuously losing
customer trust. According to the survey where 20 500 global retail banking customers
were interviewed, 44% of them stated that their confidence in the banking industry
had decreased in the last 12 months. Most of those surveyed (53%) quoted
macroeconomic factors as the reason for loss of confidence. Brand strength, image
and reputation were mentioned as being key factors in a satisfying bank-customer
relationship.
Recently Goldman-Sachs, a company which suffered a great deal during the financial
crisis, reported that it would introduce significantly more transparency in its financial
reporting (Rappaport 2011). In the US the senate is discussing the role of auditing and
accounting, and their contribution to the crisis (Romanek 2011). Fair value accounting is still the subject of discussion as financial institutions have to rethink their finances according to the new regulations (Van Gaal 2011 and Salama 2011).
The contemporariness of the subject can also be seen in the list of references of academic papers for this research as only a few of them are dated beyond the year 2007.
New research is being constantly published and the effectiveness of new financial reporting standards is being consistently evaluated.
The next chapter will consist of literature on the subject matter and further establish
importance and diversity of the subject.

2. Literature review
There are four parts to this literature review. First of all, the objectives of financial
reporting and the characteristics of useful reports are discussed in order to indicate
which aspects of financial reports should be looked at in more detail.
The second part establishes a link between the usefulness of financial reporting and
the financial crisis. Key concepts of complexity and understandability as well as
reliability and relevance are discussed here. The debate on fair value accounting plays
a strong part also as its effect on reliability and relevance has been a fairly
controversial subject.
Thirdly, there is a discussion on the implications of financial reporting on regulation
reform. In order to access this discussion, the reactions of several institutions and
regulatory bodies on the financial crisis are studied. Since the actions of regulatory
bodies aim to heal the financial environment and promote trust in financial markets, it
is important to study the areas where they have found problems and are working to
improve standards.
In the final part, issues of transparency and disclosure are discussed. This is because
in the literature reviewed these issues were widely considered as providing possible
solutions to the problems that have surfaced.
This review also exposes gaps in the literature. The unstable environment during the
crisis caused changes in financial reporting of banks. This raises several questions as
to how this has affected client confidence. The literature does not address these
questions adequately. The review therefore gives a base for the upcoming survey
presented to corporate clients of banks.

2.1. Objectives of financial reporting

The purpose of financial reporting is to provide users with useful information when
they make decisions in the market. According to the IFRS Framework (IAS Plus
2010), there are limitations to financial reporting as other information is needed in
order to form a complete understanding of the position of a company. There are
certain characteristics that make financial information useful and they are defined in
the framework. Understandability is a component of financial reports, which makes
the information accessible and useful to users as well as affects the achievement of the
key characteristics. The key qualitative characteristics of financial reports, according
to the IFRS framework, are relevance and reliability. Relevance means the extent to
which the information helps in the decision making process of users through its
predictive and confirmatory value. Timeliness is an issue of relevance as it affects the
timeliness of the decisions made. Reliability, or otherwise referred to as
representational faithfulness, is defined by the informations ability to accurately
reflect the underlying economic phenomenon that it intends to represent. These
characteristics are almost universal as they are also a part of the framework of the
Financial Accounting Standards Board so in addition to including the more than 100
countries that require or allow the IFRS, the U.S. accounting standards have the same
objectives (SEC 2008). If these characteristics are then expected of financial reports,
the perceived faltering of one or more could lead to a loss of confidence from the
user.
It has been argued (Bandyopadhyay et al. 2010) that relevance is favoured in new
accounting standards over reliability and fair value accounting has been said to
reinforce this distinction (Heffes and Orenstein 2005). The timeliness of financial
reporting has been brought to question by Miller and Bahnson (2009), as they would
have the reporting frequencies shortened. The complexity of financial instruments and
their valuation has sparked debate about the understandability of financial reports,

which has been under discussion by standard-setters for a while

(PricewaterhouseCoopers 2008). When so many of the characteristics have been
questioned in the last few years, a change in the perceived usefulness of financial
reports is certainly possible.

2.2. The role of useful financial reporting in crisis

2.2.1. Complexity and understandability
Complexity in financial reports is not a new topic of discussion and has been debated
before the financial crisis. In 2008 the IASB produced a discussion paper entitled
Reducing complexity in reporting financial instruments (Cairns 2008) that resulted in
IFRS 7 and IFRS 9, works in progress that aim to clarify the disclosures and
valuations of financial instruments and make them more transparent (IAS Plus 2011).
The development of IFRS 9 is especially important as it determines whether financial
instruments should be valued at amortised cost or fair value.
According to a survey by the Chartered Institute of Management Accountants
(CIMA) of 350 directors, 90% thought that financial reports are unnecessarily
complex and 94% thought that the problem had been getting worse in the last five
years (CIMA 2009). The survey indicated that respondents would rather have
financial reports be relevant and understandable than completely reliable. The notion
of principles-based rather than rules-based accounting, is supported by both CIMA
and the Global Accounting Alliance and indicates that current financial reporting
standards are complex for both compilers and the end-users (GAA 2008).
Turner (2010) argues that the complex financial instruments used by banks and their
valuation in the market should mean that banks are different in their financial
reporting. The inherent complexity of financial instruments used by banks results in
an asymmetry in information between buyers and sellers. He mentions that the

valuation of the problematic assets of banks and the standards used for their
measurement for different banks were unclear and contributed to the decreasing
confidence in financial markets. Complexity affects understandability, which
contributes to the usefulness of financial reports. If the information is too complex for
a user, it diminishes the usefulness of the report.
Complexity of financial reports is an important issue as it affects reliability, relevance
and understandability. Reliability is affected if the complexity of the reports means
that valuations do not reflect the real position of the institution.
Relevance is affected if time used for adhering to all rules and giving maximum
disclosure means that reports are not timely or clear enough to help the decision
making process of the user. Understandability is affected if reports are too complex
for ordinary users and not clear in their output.

2.2.2. Reliability and relevance

The financial crisis and financial reporting are closely linked as the crisis was in
essence a crisis of liquidity and credit (Langley 2010). Joshua Rosner, managing
director at Graham Fisher & Co. in New York said: Its not a liquidity problem, its a
valuation problem, capturing the essence of linking the financial crisis to financial
reporting (Ivry 2008). Valuations of complex financial instruments lead to
information asymmetries within the system when assets were first valued at a higher
price than was realistic and at a lower price when the economy experienced a
downturn. Falling asset prices lead to liquidity and credit problems for banks and the
financial problems of banks lead to the failure of other institutions (Turner 2010).
Also, information asymmetries feed the uncertainty and imbalance in the system and
aggravate the initial problem. This problem is referred to as procyclicality (CatarineuRabell, Jackson & Tsomocos 2005). Investors could not make informed decisions in
the midst of the confusion about valuations. This is a problem of both reliability and

relevance as financial reports that are not consistent and clear in their valuations
cannot give reliable information nor can they be relevant to decision making. Flegm
(2008) says that relevance in financial reports requires for them to be reliable. He
criticises the way reliability has had to give way for relevance, especially through the
use of fair value accounting.
Barth and Landsman (2010) discuss the role of financial reporting by banks in the
financial crisis. They discuss such financial reporting features as fair values, asset
securitisations, derivatives and loan loss provisioning. They conclude that a lack of
transparency on derivative financial instruments and the pooling of debt resulted in
problems in determining the real financial position of a bank. Determining the real
position of a bank through financial reports is the key to reliability, which in turn
affects the usefulness of the reports in decision making.
Miller and Bahnson (2009) state that the role of financial reporting is to reveal the
truth honestly, openly, completely, clearly, unambiguously, and with sufficient
frequency to be timely. They say that financial reporting should fulfil this role
before, during and after a crisis. Before a crisis, transparent financial reporting would
give signs of trouble ahead and give a forewarning to investors. During a crisis,
financial reporting should provide information about where the problem areas are and
how future cash flow prospects are affected. According to Miller and Bahnson, in the
recent crisis information flowed too slowly and was misinterpreted to indicate credit
risks of other debt instruments. After a crisis, the role of financial reporting is to
signify when the economy starts improving and by how much. In Miller's and
Bahnson's view, this positive information should not be artificially created but should
reflect the actual situation. Miller and Bahnson (2009) also recommend that reporting
frequencies should be shortened as to provide information that is as up to date as
possible. Timeliness is related to the relevance of the reports as relevant information
has to be timely in order to be useful. Miller and Bahnson argue that financial

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information during the crisis was not available to decision makers early enough and
was not useful to the decision making process.
Miller and Bahnson require both relevance and reliability of financial reports and say
that both aspects have failed in the crisis. Their point of view is in agreement with
Barth and Landsman (2010), who view transparency and disclosure as being key in
preventing crises.
James Turley (2009), CEO of Ernst & Young, sees the key causes of the crisis being
too much leverage, misuse of financial instruments, bad loans, unrealistic
expectations, improper handling of risk and gaps in regulatory systems. He states that
normal lending from banks will not continue until statements of financial position are
sorted.
Martin Taylor (2009) blamed bankers for the crisis stating that banks paid out bonuses
that did not consist of actual cash but unrealised profits derived from booking
revenues. Giving out cash that did not exist then led to a crisis in liquidity. Taylor
concludes that the crisis was a result of the bankers inability to count. The same
concern about remuneration is repeated in a study conducted by Ernst and Young
(2011). The study showed that executive remuneration was quoted by 80% (U.S) and
69% (U.K.) of interviewed retail bank customers as being one of the reasons for loss
of trust in banks. Still, only 40% of the 500 surveyed senior executives in another
report by Ernst and Young (2010) answered that bonuses should be regulated and
capped. The study underlines the lack of reliability in financial reports and customer
trust in them. According to Taylor, the numbers produced in financial reports did not
reflect the real situation.
Adair Turner (2010) commented on Martin Taylors article by saying that it was not
merely a criticism of bankers but concerned accounting standards and their
application. He agreed that executive remuneration would have an effect on customer
confidence and the payment of large bonuses would indicate a stable financial

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position when, in reality, there were no cash funds to give out. He says that
accounting standards are designed to reflect a companys position in a certain point of
time. This has caused some bank regulators and central banks to argue that banks are
different from other institutions and accounting standards should reflect that. Turner
argues that the current accounting standards for banks can intensify volatility. This
happens when the use of the incurred loss model leads to over-optimistic results. This,
in turn, leads to excessive lending and finally, when conditions are less favourable,
results in diminished assets and less lending.

2.2.3 Fair value accounting

A controversial argument that was raised during the financial crisis concerned the role
of fair value accounting in either causing or exacerbating the crisis. Fair value
accounting was blamed for contributing negatively to the crisis in terms of the decline
of value in bank assets (Barth and Landsman 2010). Discussion of the issues with fair
value is relevant to this study because using fair value methods can be seen as a tradeoff between relevance and reliability. Historic cost accounting could be seen as more
reliable as it relies on the purchase value of an asset while fair valuation relies on
market values that are apt to change (Heffes & Orenstein 2005).
In the U.S. several parties, including the American International Group Inc., called for
the suspension of fair value policies stating that it forced companies to value assets at
much lower prices than their true value (Westbrook 2008). A former Federal Deposit
Insurance Corporation chair, William Isaac, blamed the Securities and Exchange
Commission in the U.S. for causing the crisis (Sopelsa 2008). In 2008 he stated that
fair value accounting rules backed up by the SEC destroyed 500 billion dollars of
bank capital by having the banks value assets at market prices. In his opinion they
should not have been marked to market. Steve Forbes (2009) agrees with this view as
he criticised fair value policies for being inappropriate in illiquid markets and
magnifying the fluctuations in the financing world. He said that most of the losses

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recorded by financial institutions had been book losses and not actual losses and led to
banks being increasingly rigid about lending. Forbes said that the changes made to the
policies after complaints from banks were merely cosmetic and did not fix the
actual problem. He disagrees with Miller and Bahnson (2009) in their statement that
financial reporting should happen at shorter intervals and says that reporting all
fluctuations is unnecessary.
Turner (2010) also discusses the role of mark-to-market accounting in aggravating the
decline of markets as rising values indicate higher profits and the bonuses paid out
from these apparent profits affect market confidence. He does not, however, place
blame on fair value accounting standards as, in his view, there are no relevant
alternatives for the valuation of derivative financial instruments.
Miller and Bahnson (2009) would not place the blame on mark-to-market accounting
but encourage its use with all assets and liabilities. James Turley (2009) agrees with
Miller and Bahnson in his statement that the suspension of fair value accounting
measures would be dangerous. He also stands by globally uniform accounting
standards. Barth and Landsman (2010) come to the conclusion that fair value
accounting had little to no effect on the crisis but transparency and disclosure were
insufficient for investors to make informed decisions. Rankin (2009) believes that fair
value was not the cause of the crisis but only mirrors reality.
There is dissidence on whether fair value pertains more to reliability or to relevance or
equally to both. The arguments for and against are strong and it is clear that policy
makers will be dealing with critics of fair value in the future.
The Securities and Exchange Commission reviewed fair value policies in an extensive
study and came to the conclusion that the policies should be improved but not
suspended. These suggested improvements concerned the use of fair value policies in
illiquid and distressed markets (SEC 2008).

13

A survey conducted by the CFA institute (2008) revealed that 79% of CFA Institute
members worldwide believed that fair value accounting measures improve
transparency and risk recognition. In addition to this, the Financial Crisis Advisory
Group (2009) report states that a major fact forgotten in the fair value debate is that in
most countries majority bank assets are valued based on historic cost. The report
states that the value of assets has been overstated as the complexity of off-balance
sheet standards has delayed the recognition of losses on loan portfolios. This is in
contrast to the argument that using fair value accounting leads to the overstatement of
losses.
Still, a summary of feedback received by the FASB in 2010 indicated that majority
did not support fair value for financial liabilities (Orenstein 2010). These results
suggest that there is still a variety of differing opinions and total support for fair value
is a long way off.
Even though the debate on fair value accounting continues, it is unlikely that standard
setters would abandon the policies. The IASB and FASB have both voiced their
support for fair value but are in works to improve the standards related to it (FASB
2009 and Lamoreaux 2011). Though fair value accounting has been widely supported
by policy makers, it is possible that the recent discussion and questioning of the fair
value standards have changed the perception that the users of financial reports have of
the reliability of standards.

2.3. Financial regulation responses

In the U.K. the British Bankers' Association published a new code for financial
reporting aiming to promote enhanced disclosure practices that was adopted by the
seven biggest lenders in the U.K. in 2010 (Thomas 2010).
Basel III is the third of the Basel Accords, which are issued by the Basel Committee
on Banking Supervision. The goal of the Committee is to improve the quality of
14

banking supervision worldwide and the most recent accord discusses strengthening
bank transparency and disclosures. Public disclosures make up Pillar 3 of the accord.
Transparency has therefore become an international mission for regulators (BIS
2010).
In the 2008 Washington summit the Group of 20 (G20) agreed that the financial crisis
was caused by a poor understanding of risk and inadequately coordinated
macroeconomic policies. One of their major goals was to strengthen transparency and
accountability. This would be achieved through improving the reporting of complex
financial instruments and promoting full transparency in reporting the current
financial state of companies. They listed immediate actions that would be in use by
March 2009 that included the bid for accounting standard setters to clarify guidance
for the valuation of securities and complex, illiquid financial instruments in distressed
markets. They also called for accounting standards setters to address the problems
with off-balance sheet vehicles and disclosure of complex financial instruments. They
also planned to develop the relationship of the International Accounting Standards
Board and relevant authorities in order to promote transparency and accountability of
international accounting standard development. Medium term goals included better
regulation for the implementation of the new measures (BBC 2008).
The IASB has tackled problems with valuations by making amendments to IFRS 7
and 9 that concern valuation and disclosure of derivative financial instruments (IAS
Plus 2011).
The Financial Crisis Advisory Group (FCAG) that advises both the FASB and the
IASB brought out a report in 2009 concerning their recommendations as to what
should be done after the financial crisis (FCAG 2009). They agreed with other
institutions in that financial reporting should provide unbiased, relevant and
transparent information about the state of a company and are based on quality
accounting standards and efficient regulation. The FCAG state that this goal is reliant

15

on globally converged financial reporting standards. They say that accounting

standards were not the main problem in the financial crisis but that the crisis has
brought to light several problems that should be solved. The report identified four
major issues in accounting standards: the complexity of fair value accounting policies,
the delayed recognition of losses deriving from financial instruments like loans, offbalance sheet financing structures, and the complexity of reporting financial
instruments. The report says that even though accounting standards did not exacerbate
the crisis, less complexity and more transparency could help restore confidence in
financial markets and promote overall stability and growth. The report also recognises
the limitations of financial reporting as only reflecting one point in time. The report
encourages using financial reports against a background of other information, like
industry trends and performance data, in order to give the fullest view possible of the
current state of the company (FCAG 2009).
In a study by Ernst and Young, 500 senior executives in the financial services
industry in Europe and U.S. were interviewed concerning their confidence towards
financial regulations (Ernst and Young 2010). 35% of those interviewed thought that
the current regulations were enough to decrease the chance of another financial crisis.
The U.K. and U.S. numbers were lower with 25% and 19% respectively. Furthermore,
only 14% of respondents agreed that regulation at a global level is sufficient to
prevent a new crisis. When asked whether regulations should be made globally
uniform, 79% agreed. This report indicates a strong mistrust in the power of
regulators to prevent another crisis.
This view is supported by Turley (2009) who does not want financial reporting to be
politicized. He states that the role of accounting as promoting transparency,
consistency and comparability would be under threat were accounting standards made
into a political issue. He agrees that there is room for reform but these reforms should
not be protectionist. It is difficult for accounting issues to not become a politicised as
the decisions made affect the economy in sometimes drastic ways.
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The reactions of the regulatory institutions and standard setters point to where the
problems lie and much emphasis seems to be placed on increased transparency and
disclosure as the solution. Therefore, the issues are discussed in the next section.

2.4. Transparency and disclosure

Bearing in mind the earlier discussion, the literature suggests that information
asymmetries lead to a lack of reliability in financial reports, which in turn affected the
usefulness of the reports. The regulation responses are aimed at restoring reliability
through increased transparency and disclosure. As discussed later, increased and
improved auditing practices have been suggested to improve transparency.
In her speech for the Financial Executives International's 28th Annual Current
Financial Reporting Issues Conference in New York in 2009, SEC Commissioner
Kathleen L. Casey (2009) said: Financial stability depends upon market confidence;
and investor confidence, in turn, depends upon the transparency of financial
statements. In addition, Casey stated, the role of financial reporting is to provide
investors with useful information about the current state of the company so that they
are able to make the informed decisions, which in turn promotes efficiency in the
market. Martin Gruell of Raiffeisen International also said, as quoted by Hegarty
(2009), that: No transparency, no trust; no trust, no credit; no credit, no investment;
no investment, no growth! So there is a simple logic: financial reporting is an
essential building block for financial intermediation, foreign investment, and
sustainable economic development.
Barth and Schipper (2008) define transparency in financial reporting as revealing the
economic position of a company in a way that is clear to the reader. According to this
definition, transparency concerns the reliability and understandability of financial
reporting. They write that research proves that improved transparency lowers the cost
of capital as information asymmetry is lowered.

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It seems as though the idea of maximum transparency is thought of as a universally

beneficial concept. In his article Banking transparency and the robustness of the
banking system Solomon Tadesse (2010) examines the relationship of transparency
and the stability of the banking system. The definition of transparency that the Bank
for International Settlements gives and Tadesse uses is: transparency is the public
disclosure of reliable and timely information that enables users to make an accurate
assessment of a banks financial condition and performance, business activities, risk
profile, and risk management practices. There are several reasons why bank
transparency would enhance bank performance and stability according to Tadesse. It
reduces risk taking, losses would be less costly as recovery from the crisis could be
quicker. A big problem for banks during times of crisis is panic, which is said to
derive from information gaps between banks and clients, and the spreading of panic
through miscommunication. To prevent this, clear and transparent reporting prevents
misinformation from permeating the system and inducing panic.
On the other hand, Tadesse argues that full disclosure may also be misinterpreted as
indicating wider spread problems and lead to mistrust in financial markets. He says
that this ambiguity of the usefulness of bank disclosure is reflected in the reluctance to
accept disclosure policies without questions. For example, in Japan a move has been
towards less disclosure even though the World Bank and International Monetary Fund
encourage enhanced disclosure practices. Still, a study by Nier and Baumann (2006),
as referenced by Tadesse, exhibits that disclosure affects banks capital buffers, which
in turn affect risk-taking. Another study by Tadesse in 2006 presented strong evidence
that transparency fortifies the banking system. Tadesse concludes by stating that
although is not the cure for the banking industry but the evidence suggests that it does
promote stability.
Interestingly, Turner (2010) does not believe that full disclosure and transparency
would be the answer to preventing another crisis but states that implementing those
measures would serve to increase volatility. He concludes by saying that banks are
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different as their downfall can be the cause of a financial crisis instead of just a
consequence and accounting standards should be adjusted so that there is not just one
way of valuation for assets but different options for different situations.
Turley (2009) recommends that the Sarbanes-Oxley act be enforced outside the U.S.
and advises on the establishment of an independent regulatory authority to look over
public company audits.
The notion of auditing playing a part in increasing confidence in financial markets is
supported by a report from the Institute of Chartered Accountants in England and
Wales ICAEW (2010). The Institute suggested that more information about the role of
auditing in banks would increase the value placed on audit and thereby increase
market confidence. The report states that as bank reporting has come under criticism
during the financial crisis, it should be the starting point for any improvements. The
problem, as the report says, is not necessarily in the amount of information given by
banks in their reporting but the format in which the information is given. Risk
information is not openly accessible to non-expert readers and according to the report
investors were concerned that risk statements provided by bank directors may not
reflect the whole truth and would benefit from an auditor reviewing them. A study by
Anderson, Mansi and Reeb (2004) substantiates this view as they found that
independent audit committees can positively affect the reliability of financial
reporting.
Though there are counter-arguments to the benefits of transparency and disclosure,
the regulation responses indicate that improved transparency is a shared goal of policy
makers.

2.5. Conclusion
The purpose of the literature review was to shed light on the research question and
give background for the issues related to it. It established a link between financial
reporting and the financial crisis, demonstrated the public considerations related to

19

financial reporting reform and described some solutions to the problem of usefulness
in financial reports.
The next section will concentrate on the methodology used in primary research in
order to find the answer to the specific question about customer perception of
usefulness in banks' financial reports.

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3. Research methodology
3. 1. Research Approach
Quantitative research has been chosen over qualitative research as the data used will
be numerical and the research has a specific focus of substantiating or contradicting
the hypothesis (Denscombe 2007). The hypothesis is developed after having reviewed
the literature. In this case the literature indicates that the answer to the research
question is: Yes, perceptions of the usefulness of banks financial reports has
changed as a result of the financial crisis The literature also indicates a reason for the
loss of confidence being the lack of adequate transparency in financial reporting. The
hypothesis, therefore, is: There has been a loss of confidence in the usefulness of
financial reporting of banks after the financial crisis because of a lack of sufficient
transparency. The primary research tests this hypothesis in the Finnish business
environment and gives direction to future research and discussion.
In financing, quantitative research is more common, though qualitative research has
been gaining stature (Cassell, Buehrins & Symon 2006). The benefits of quantitative
research are that it allows the researcher to concentrate on a chosen few issues that
have been brought up in the literature review and it is more generalisable and
objective than qualitative research. The benefits of using a survey to obtain
quantitative data are that answers will be easy to codify and easy to analyse. The
disadvantage is that qualitative data would give a deeper look into the subject instead
of just answering the specific research question. In the case of this research,
quantitative methods have been chosen because the research question is one that
needs a simple answer that either supports or contradicts the literature review.
Though qualitative research would give more depth to the research, quantitative
methods can also include open questions, which in the case of this research, are adept

21

at giving depth and allow exploring the issues more widely. The research also takes
an empirical outlook as the information is sought out instead of being set.

3.2. Data source

The data source is corporate customers of publicly listed banks in Finland and more
specifically those employees who work with financial reports. This focus group was
primarily chosen because the question requires a certain level of technical
understanding in order to be answered in a useful way. The chosen employees deal
with the issues presented in this dissertation first hand and that it why they are the
appropriate group to answer the survey questions. All publicly listed companies in
Finland are required to use the International Financial Reporting Standards and are
therefore subject to the same definitions of financial reporting usefulness.
The sample was chosen at random from a list of personal contacts. Using personal
contacts allows for a better response rate, which was important in conducting this
study. The respondents are from different types of companies, both small and large
and from different industries, and are customers of different banks.
The important issue is to have an adequate amount of answers for the research to be
useful. Taking into consideration time and money, the sample size is relatively small
but it is adequate as it fulfils its purpose in supporting or contradicting the hypothesis
and giving an indication of what issues can be discussed in future research.

3.3. Data collection

The data collection method is that of a survey. According to Denscombe (2003),
surveys aim to give wide and inclusive coverage, an objective that is common to the
quantitative approach. Surveys are also inherently empirical as the word itself
conveys the action of going out to find information.

22

Smith (2003) outlines design and planning issues for surveys, which have been
discussed here in the context of this primary research. There are several issues to
consider when formulating the questions like: clarity, relevance, unambiguity and the
technical knowledge needed. A short explanation of terms used in the survey is
provided in the e-mail send to the respondents to enable maximum unambiguity. As it
is important to ask the right questions in order to get useful answers, all questions are
related to the literature review.
What kind of survey is going to be used is the first consideration, according to Smith
(2003). Taking into consideration the limited resources of the researcher, the chosen
method is an internet survey sent via e-mail. Internet surveys are quick and easy to fill
in, and are flexible and user friendly, as they can be filled out at anytime and
anywhere. The disadvantages of internet surveys are that respondents may submit
incomplete forms or may misinterpret the meaning of a question as no immediate
consultation with the researcher is possible. In this case, an internet survey is the most
appropriate method as they are most convenient for the respondents who are busy,
working people.
The next aspect to consider, according to Smith (2003), is the respondents the survey
is going to target. In this case, the respondents are employees of the corporate
customers of banks. Because of the narrow focus of the study, the respondents were
contacted instead of randomly sought through advertising. This ensures that the
respondents are adept at answering the questions.
The appropriate type of questions should be asked in order to solicit useful answers,
says Smith (2003). In this research a mixture of different question types are used so
that the most appropriate type of question is used for the nature of the information
needed. Those questions that will be featured in chart form are closed and those that
are exploratory and aimed making use of the specific knowledge of the respondents
are open.

23

Next, the sequence of the survey questions should be considered (Smith 2003). For
this research, there are only a few background questions in the beginning and the rest
are aimed at answering the research question and issues related to it.
The layout of the survey should be so that it is interesting and relevant for the
respondent and not too long. Smith (2003) recommends that a survey should not be
longer than four pages and should not take more than 20 minutes. This survey has
been designed so that it is fast and easy to fill out as the respondents are busy people
who benefit from the simplicity of the survey.

3.4. Data analysis

Most of the quantitative data consist of answers to closed questions. Open answers are
presented outside of the charts to add to the numerical data. Many of the questions
make use of the Likert scale, which is classed as ordinal data. The other type of data
used is nominal data, which concerns background questions.
Denscombe (2007) gives a guideline to the analysis of quantitative data. The data is
first coded, categorised and checked. Coding is used in order to facilitate the
computer analysis of data because the answers are not in numerical form. As this
research is quite simple, no complicated coding is necessary. According to
Denscombe (2007), the benefit of having simple raw data is that it needs little
manipulation and the end result is therefore a faithful representation of the original
research. Coding is be used for the closed questions, which use the Likert scale. In
these cases, letters are assigned for each answer possibility and the answers are
submitted in letter form to Excel. The small sample size allows the use of Excel
instead of, for example, SPSS, which is more suitable for analysing greater quantities
of data.
Next, the initial analysis looks for obvious correlations in the answers. Some
questions have more agreement while others divide opinions. At this stage, those
24

answers that have a high level of agreement are taken into consideration while the
reasons for divided answers are looked at in the main analysis.
In the main analysis, the data is linked to the literature review. In this research, as the
questions have been formulated according to the literature review, the links are easy
to make. The main analysis consists of descriptive and inferential statistics, meaning
that the data analysis presents variable frequencies and averages as well as
considering the significance of the research as related to the literature review (Blaxter,
Hughes & Tight 2006). The representation of the data involves creating charts and
figures and giving written explanations of the findings. Charts are created for closed
questions while the written explanations consist of analysis of the open questions and
the connections to the literature review. The representation is a summary of all the
data instead of concentrating on a chosen few answers. This method of data analysis
is consistent with quantitative research as it presents findings in mostly numerical
form.

3.5. Conclusion
Due to the small sample size and locality of the research, it is not generalizable. The
research does not, therefore, give a definite answer to the research question or
definitely disprove or validate the hypothesis but instead gives a situational view on
the issue discussed and leaves open the possibility of further research. As the chosen
approach is quantitative, the research is broader than it is deep. A qualitative research
would give a deeper description of the insights of the respondents while quantitative
research aims to answer the question that the literature has posed.
As the research is conducted in Finland, the answers may be different than what they
would be in a country that was more severely affected by the financial crisis. The
research is therefore not fully representative of the world. Still, the International
Financial Reporting Standards are common to all European public companies and so

25

the same rules apply to all publicly listed banks regardless of the level of impact of
the financial crisis and the research is valuable as it gives an indication of possible
problems in this area.
This chapter demonstrated the chosen methods and approaches to the research and
explained why these particular methods were chosen. In the next chapter, the data
derived from the survey will be presented and analysed according to the approach
stipulated in this chapter.

26

4. Data presentation and analysis

Out of 30 respondents, 14 answered that they were either managing directors, or
deputy managing directors, or CEO's. Four of the respondents were in sales, three in
finance and the others were a mix of different managers. 15, or half, of the
respondents work at a company that employs less than 50 people, while six worked at
medium-sized companies (50-249 employees) and 9 worked at large companies (over
250 employees).

Q. 3 How se verely has the bank, w hos e cus tom er your

com pany is , be en affe cted by the financial cris is?
0%
27 %

20 %
To a great extent
Somew hat
Very little
Not at all

53 %

To a great extent
Somewhat
Very little
Not at all

0
6
16
8

In this chart is presented the greatest short-coming of the research. Though this result
may be representative of the situation in Finland where fewer banks were seriously
affected by the crisis than, for example, in the UK. The finance sector in Finland
benefited from its stable position prior to the crisis and was not affected by the same
factors that caused the crisis in the first place. It is not possible to generalise these
results and, especially, not possible to draw conclusions about the effects of the crisis

27

on the perceived usefulness of banks financial reporting in countries in which banks

were more affected. As can be seen from the pie chart above, 80% of the respondents
reported that their banks were barely affected by the crisis and only 20% said that
their banks was somewhat affected. Of course the perception of the respondents is
affected by the reports that their bank would give out and it is therefore questionable
whether this result is representative of the reality. Still, as the research aims to find
out the perceptions of banks corporate customers, the perceived reality is more
important than the statistics.
This is in contrast with the literature review where problems have been discussed that
have risen from the dismal situation of banks in the financial crisis. Were there no
such pressure put on the system, regulators may not have been made aware of the
existing problems. The problems that have been more extremely experienced by other
countries than Finland, radiate to the Finnish system especially as most companies use
the IFRS and business is increasingly global.

28

Q.4 I have becom e les s confident in the use fulne ss of

bank's financial reports as a result of the crisis.

23 %

Strongly disagree

0 % 10 %

Disagree

37 %

Neither agree nor

disagree
Agree

30 %

Strongly agree

Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree

3
11
9
7
0

This chart presents the core question of the survey. Almost half of the respondents
said that they have not become less confident while only 23% deemed that they have
become less confident. This result contradicts the literature review as the literature
pointed to several problems that had been found within the system and even those
who believed that financial reporting was not the cause of the financial crisis,
admitted that there is plenty of room for improvement. Still, the literature review only
discusses the opinions of experts and regulators while this study involves the opinions
of regular corporate customers who may be less aware of problems in the system as it
is not their duty to correct them. Were the regulatory bodies asked this question, the
responses could be more divided as it is noted in the literature review that there are
those who are calling for a financial reporting reform while others are content with
only minor tweaks.
A third of the respondents on this question did not sway either way but many of those
who had answered neither agree nor disagree answered the same on other questions or
agreed with most statements while very few disagreed with statements. Those who

29

strongly disagreed on this question predictably also thought of financial reports as

reliable, relevant and understandable.
Those who disagreed showed consistency in the rest of their answers. They agreed
that financial reports gave reliable and relevant information, and that increased
transparency and independent auditing committees would enhance the usefulness of
financial reports. There was some variation in opinions on understandability and fair
value accounting but even with those questions, the majority agreed with the
statements.
Those who disagreed were more varied in their opinions. There was far more
disagreement regarding relevance, reliability and understandability but the vote was
still roughly half and half. So even those who had lost some confidence in the
usefulness of financial reports deemed that the reports were not lacking in all areas.
Only two respondents replied that financial reports have not given relevant, reliable or
understandable information.
The literature review indicated that several aspects of useful financial reports have
suffered during the financial crisis, especially in the banking sector. In order for
financial reports to be useful they should be reliable, relevant and understandable. To
elaborate on the core question, the following questions concerned these aspects.

30

Q.6 Banks' financial reports have give n re le vant

inform ation during the financial crisis.
0%
Strongly disagree

0%
23 %

Disagree
Neither agree nor
disagree

50 %

Agree
27 %
Strongly agree

Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree

0
7
8
15
0

The divide in this question was quite clear. Half agreed that financial reports have
given relevant information during the financial crisis. A quarter of the respondents
neither agreed nor disagreed, which could mean that they had no opinion on the
question or thought that financial reports were on the borderline of relevant and not
relevant. Another quarter disagreed with the statement.
Relevance in financial reports allows users to make quick and informed decisions,
which for these respondents would mean the ability to prepare for receiving less credit
from their banks and arrange their processes accordingly. Those who disagreed on
this question referred to the lack of information received from their banks and the
inability to make decisions based on the information that was given. Interestingly,
those who disagreed on the question were unhappy with the information that the bank
gave out after their investments had suffered instead of financial reports alerting to the
possible problem before it happened so that it could be predicted. It seems then that

31

the banks of these respondents did not give out information that was not timely
enough or did not have predictive value: both components of relevant financial
reports. Assuming that those who answered that their bank has not suffered during the
financial crisis also answered that they thought of financial reports as relevant, their
confidence may not derive from actual relevance but the fact that they had nothing to
be worried about.
According to Miller and Bahnson (2009), as discussed in the literature review,
financial reports did not give timely and useful information during the financial crisis
as they were not transparent enough. Miller and Bahnson deemed that financial
reports did not give information that could be used early enough to make decisions.
Additionally, according to Turner (2010) the complexity of financial instruments
build the information gap between institutions and those who use their financial
reports, making it hard to use them in decision making. The results are contradictory
to these statements.

32

Q.8 Banks' financial reports have given reliable

inform ation during the financial crisis.
0%
0%

Strongly disagree
20 %

60 %

20 %

Disagree
Neither agree nor
disagree
Agree
Strongly agree

Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree

0
6
6
18
0

Surprisingly, 60% thought that financial reports have given reliable information
during the crisis, which is slightly more than those who thought that reports are
relevant. According to these respondents then reliability has not suffered for relevance
and both aspects are acceptable in their current state, even though the literature review
indicated a possible trade-off between relevance and reliability especially in the use of
fair value accounting (Heffes & Orenstein 2005).
Reliability refers to the extent to which the financial reports reflect the financial
position of the bank. Those respondents who disagreed on this question answered that
the lack of information, its partiality and its poor accessibility affected the reliability
of the financial reports.
As discussed with the question on relevance, it is possible that those whose banks
were not affected by the crisis deem the financial reports to be reliable because they
had no reason to believe otherwise as their assets did not come under threat. Their

33

banks may still have underlying problems but the corporate customers are not alerted
to them unless they have assets that have suffered as a result of the financial crisis.
Barth and Landsman (2010) stated that lack of transparency in financial reports during
the financial crisis, especially concerning derivative financial instruments, made it
hard for users to determine the real value of assets. Turner (2010) and Taylor (2009)
agreed that the accounting standards of the time produced over-optimistic or
unnecessarily negative results and banks were in some cases doling out money that
they did not have in reality.
With such strong arguments to criticise the reliability of financial reports, it is
surprising that so many of the respondents found reports to give reliable information.

Q. 10 Bank's financial reports are currently sufficiently

unde rs tandable and acces sible to the use r.
Strongly disagree

3% 7%

Disagree
30 %
47 %

Neither agree nor

disagree
Agree
Strongly agree

13 %

Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree

2
9
4
14
1

This question divided opinions most drastically. While 47% thought that financial
reports are sufficiently understandable and accessible to users, 37% were unhappy
with these factors. Those who disagreed stated that financial reports are only
34

accessible to experts but not to regular shareholders or customers. According to the

respondents, financial reports are for professionals and cannot be understood by those
who have not had training. One respondent also said that the bank does not offer any
help with understanding their reports.
These views are supported by the literature review. Many of the contributors
discussed in the literature review were of the opinion that the complexity of financial
reports, especially in the valuation of problematic financial instruments, results in
information asymmetry which in turn affects the ability of users to make informed
decisions (Miller and Bahnson 2009, Turner 2010 and CIMA 2009). The surveys of
CIMA (2009) and GAA (2008) indicated that great dissatisfaction exists concerning
the complexity of financial reports and the effect it has on relevance.
Still it is surprising that yet again so many of the respondents thought that financial
reports are sufficiently understandable and accessible in their current state when 90%
of those surveyed by CIMA in 2009 thought that they are too complex. The difference
may derive from the fact that those interviewed by CIMA were from a variety of
corporations while these respondents were only asked about the financial reports of
banks. The result may also be affected because the results are from Finland only while
the CIMA results were global. The results point to Finnish users of financial reports
being more satisfied with their understandability and less affected by their
complexity.

35

Q. 12 Fair value accounting produce s reliable value s for

as se ts.

3%

3%

Strongly disagree
10 %
Disagree
Neither agree nor
disagree

47 %
37 %

Agree
Strongly agree

Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree

1
3
11
14
1

Fair value accounting is an issue that has been widely discussed especially as the
financial crisis sparked debate about whether fair value is the best valuation method
for assets. Most respondents answered that fair value produces reliable values for
assets while a notable amount (37%) neither disagreed nor agreed with the statement,
which could mean that they either had no opinion on the matter or did not have
enough information about the subject. Those who answered that financial reports have
given reliable, relevant and understandable information were also mostly of the
opinion that fair value accounting is a reliable valuation method. One respondent, who
disagreed, answered that even though fair value may be the best method at the
moment, it is still not free of judgement, estimates and assumptions. Another
respondent was of the same opinion as they answered that fair value can be defined in
many ways.

36

This demonstrates the problem that has been on the minds of regulators: how to define
fair value especially in a distressed market? The IFRS is working on improving both
disclosures and valuations of financial instruments (IAS Plus 2011). According to
Heffes and Orenstein (2005) fair value accounting can exacerbate the difference
between reliability and relevance. This view is shared by Krumwiede (2008) and
Flegm (2008) who do not think that fair value accounting gives reliable results. Still,
these results indicate a relatively strong trust in the reliability of fair value accounting
and support the decision of policy makers to not suspend fair value practices.

Q. 14 Banks' financial reports w ould be m ore use ful if

the y w ere m ore transpare nt.
0%
0%
13 %

Strongly disagree

7%
Disagree
Neither agree nor
disagree
Agree
80 %

Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree

Strongly agree

0
0
2
24
4

A relatively surprising result was the almost uniform answers to whether financial
reports would be more useful if the were more transparent. Taking into consideration
that a large part of the respondents already thought of financial reports as useful, this
could be seen as contradictory. The results seem contradictory especially as almost
half of the respondents thought of financial reports as understandable and accessible

37

to users and the goal of increased transparency would be to improve these aspects.
The other possibility is that even though financial reports are seen as useful as they
are, they could still be improved.
These results reflect that transparency is not seen as a bad thing, or even a
controversial issue, but is seen to contribute positively to the usefulness of financial
reports. This was the dominant opinion in the literature reviewed, too. Barth and
Schipper (2008), as well as Casey (2009), believe that the benefits of transparency are
clear and it should be at the forefront when discussing financial reporting reform.
Though the literature review presented oppositions, like those of Tadesse (2010) and
Turner (2010), to full disclosure and transparency on grounds that it may increase
volatility, the majority opinion seems to be that transparency is an important factor in
financial report usefulness.

38

Q. 16 The us e of inde pe nde nt auditing com m itte e s

w ould incre as e trans pare ncy in financial re ports .
0%
Strongly disagree

7%

14 %

14 %

Disagree
Neither agree nor
disagree
Agree

65 %

Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree

Strongly agree

0
2
4
19
4

The last question involved the proposed solution to increasing transparency.

According to the literature review, setting up an independent auditing committee
could increase transparency in banking as evidenced by Anderson, Mansi and Reed
(2004). Though most respondents agreed that independent auditing committees would
increase transparency, some respondents disagreed and expressed concerns over the
effects of increased bureaucracy. This concern is understandable, as the
implementation of the IFRS in Finland is already a costly and time-consuming
process even without another regulatory body looking over the implementation of
standards.

39

5. Conclusions and discussion

The financial crisis exposed the financing world to a great deal of criticism with banks
at the forefront. Though the surface issues are better known, like those of liquidity,
the crisis also uncovered problems within the financial reporting system. The basics
of useful financial reports were brought under question and many were disappointed
in their performance in a distressed market. Financial reports were criticized for not
giving relevant or reliable information in addition to being inaccessible to non-experts. The valuation of problematic assets has also been widely discussed as many
have criticised the appropriateness of fair value in the valuation of derivative financial
instruments and distressed assets.
The regulatory responses indicated that the problems within financial reporting standards had come to the attention of regulators and the responses gave a good indication
of where the most serious problems are. The regulators have agreed that that major
problems were due to a lack of transparency and that improvements in financial reporting standards would involve increasing transparency and clarity.
Transparency is seen by several experts as being the cornerstone to useful financial
reporting and this is also demonstrated in the survey results as most respondents
answered that improved transparency would increase the usefulness of financial reports.
According to the survey results most of the respondents were confident in the usefulness of bank's financial reports. Most respondents thought that banks' financial reports
have given relevant, reliable and understandable information, with the most disagreement on the understandability. As indicated in the literature review some respondents
40

had strong opinions about the poor understandability of reports and thought that they
were accessible only to experts. The respondents also gave their support to the establishment of an independent auditing committee, a view which was supported by the
literature review.
During the research there were several problems. The subject had to be changed several times as the instructions given in the Finnish school and the English school were
very different. Secondly, the subject of this research requires some technical knowledge of accounting, which made it a difficult task for a student with not much prior
knowledge on accounting. The process involved learning while researching and this
made the whole experience very educational. The next problem was to find enough
respondents to conduct a useful research. Even though surveying corporate customers
in England would have produced different results, for practical reasons the results
were easier to collect from Finland considering the time frame and other resources.
Despite these difficulties, the research was successful and the survey gave relevant
and interesting results.
As the survey results have been derived from Finland, a country which was less affected by the financial crisis, they are not generalisable or universal. Also because of
the restrictions on length, the literature is not discussed as deeply as it could be. There
are several more examples of the arguments presented in the discussion but they have
simply not fit into this research. That is why future research to expand on this one is
important.
There are several issues that future research could concentrate on based on this research. It is important to monitor the progress of the improvements that are being
made to financial reporting standards and the reactions of the users to them. If users

41

do not perceive banks' financial reports as useful, it can affect the relationship and the
trust between the bank and its customers. It is therefore in the best interest of the
banks to create trusting and transparent relationship with their customers in order to
maintain a successful business. The future research should then aim to find out on a
larger scale how the changes have been received and what kind of effect they have
had on the users of the financial reports. The research should be conducted globally
and several types of users should be interviewed from small business owners to accountants. It would be especially useful to interview accountants as they have a
unique outlook into the issues discussed and deal with them daily.
In addition to monitoring the reactions to the changes, since the issue of fair value accounting has brought on so much controversy, future research could attempt to find an
alternative to both fair value accounting and historical cost accounting. As well as researching issues related to fair value accounting, the possibility of an independent
auditing committee can be further examined since research has already shown some
of the benefits of an increased role for auditing.
Even though the financial crisis is clearly not over in some countries, financial
reporting is on the mend. This research has illuminated the problems that have come
to light as a result of the financial crisis, the regulatory responses to the problems and
the possible solutions to the problems as well as the opinions of 30 employees of
corporate customers of banks in Finland. The research will hopefully give ideas and
background information for further studies and highlight the issues that should be
monitored in times to come, which will hopefully decrease the chance of another
crisis coming to pass.

42

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6. Appendix
6.1. Survey questions
Q1: What is your position in your company?
Question 2: How many people does your company employ? Answer alternatives: A 5 to 49,
B 50 to 249 and C Over 250
Question 3: How severely has the company, whose customer your company is, been
financially affected by the financial crisis? Answer alternatives: A To a great extent, B
Somewhat, C Very little and D Not at all
Question 4: I have become less confident in the usefulness of banks financial reports as a
result of the financial crisis. Answer alternatives: A Strongly disagree, B Disagree, C
Neither agree nor disagree, D Agree and E Strongly agree
Question 5: If you agree, please explain your answer.
Question 6: Banks financial reports have given relevant information during the financial
crisis. Answer alternatives: A Strongly disagree, B Disagree, C Neither agree nor
disagree, D Agree and E Strongly agree
Question 7: If you disagree, please explain your answer.
Question 8: Banks financial reports have given reliable information during the financial
crisis. Answer alternatives: A Strongly disagree, B Disagree, C Neither agree nor
disagree, D Agree and E Strongly agree
Question 9: If you disagree, please explain your answer.
Question 10: Banks financial reports are currently sufficiently understandable and accessible
to the user. Answer alternatives: A Strongly disagree, B Disagree, C Neither agree nor
disagree, D Agree and E Strongly agree

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Question 11: If you disagree, please explain your answer.

Question 12: Fair value accounting produces reliable values for assets. Answer alternatives:
A Strongly disagree, B Disagree, C Neither agree nor disagree, D Agree and E
Strongly agree
Question 13: If you disagree, please explain your answer.
Question 14: Banks financial reports would be more useful if they were more transparent.
Answer alternatives: A Strongly disagree, B Disagree, C Neither agree nor disagree, D
Agree and E Strongly agree
Question 15: If you disagree, please explain your answer.
Question 16: The use of independent auditing committees would increase transparency in
financial reports. Answer alternatives: A Strongly disagree, B Disagree, C Neither agree
nor disagree, D Agree and E Strongly agree
Question 17: If you disagree, please explain your answer.
Question 18: Do you have any further issues that you would like to express?

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6.2. Closed question results

Q1

Q2

Q3

Q4

Q6

Q8

Q10

Q12

Q14

Q16

VP of sales
Marketing
coordinator
CEO
Managing director
Services director
Chief analytics
officer
Managing director
CEO
CEO
Debuty managing
director
VP sales
Managing director
Managing director
Finance director
Managing director
CFO
Chairman of the
board
CEO
Director
Sales director
Middle
management
Head of sector
Manager
CEO
CEO
CEO
CEO
Sales manager
MD
CFO

A
A
C

B
D
C

B
B
C

D
D
D

D
D
D

D
D
D

D
D
D

D
D
D

D
E
E

A
A
A

D
B
C

C
B
B

C
D
C

C
D
D

C
D
B

C
D
D

D
E
D

D
D
E

C
A
B
B
A
B

C
C
D
D
C
C

C
C
A
B
C
B

B
B
D
D
D
D

C
B
D
D
D
D

D
B
D
D
B
D

C
C
D
D
C
B

D
D
C
D
D
D

D
C
C
D
D
B

C
C
A

C
C
C

A
B
C

D
B
C

D
D
C

D
A
C

D
C
C

D
C
D

D
D
D

C
B
A
A
B
A
C
A
B

B
D
C
D
B
C
C
D
C

C
D
C
C
D
A
B
D
D

C
D
D
D
B
C
D
B
C

C
D
C
D
B
D
D
B
B

B
D
C
D
A
E
D
B
D

B
C
D
C
D
E
D
A
D

D
D
D
D
D
D
D
E
D

N/A
D
D
D
C
C
D
D
D

53

6.3. Open question results

Question 5:
There is too much risk in many balance sheets numbers.
Disclosure of derivatives used is often so general that real risks involved are not even nearly
clear. Size of the banks' portfolios makes them also a significant player in setting the "market
prices" e.g. for real estate.
Not sure who to believe in this medias sick world
I do not believe that anybody can really forecast the future of our economy.
Manipulation of reports is just so easy
It seems that reporting is always partial and does not necessarily reflect real
Question 7:
I disagree because the banks didn't provide any information that was clear to understand
therefore I couldn't comment on their relevancy to making predictions. I simply ignored
them.
Risk analysis is insufficient
The funds our bank manages for us, lost a great deal in value. The bank never communicated
that to us. I deem it was passive withholding of information.
Rather diversified opinions from different banks
Reports did not give timely information.
No explanation of losses have been delivered, nor real evaluation of prospects for future.
Question 9:
We unfortunately can see it in Greece, Portugal and Ireland

54

I disagree because the banks didn't provide any information that was clear to understand
therefore I couldn't comment on their reliability so I simply ignored them.
I didn't trust the reliability of the documents that were passed to us.
Reports did not reflect the real position of the bank.
I have no knowing how reliable the little information is
When information is only partial it is not completely reliable
Question 11:
Perhaps to professionals but not to normal share owner
The financial reports supplied by the banks (all banks in my experience) require that you be
an accountant to understand them.
The terminology and message as a whole should be more understandable for people not really
familiar with the banking world.
Disclosure of derivatives used is often so general that real risks involved are not even nearly
clear. Size of the banks' portfolios makes them also a significant player in setting the "market
prices" e.g. for real estate.
The bank doesn't volunteer any information.
You need to be accounting specialist to understand it all. And also specialist in finance sector
Too complicated to less educated people.
Reports are only accessible to experts.
no support from the bank to offer information for interpretation
Question 13:
I disagree because the banks didn't provide any information that was clear to understand
therefore I couldn't comment on their reliability so I simply ignored them.
55

Fair value may well be the best method, but definitely not free of judgement, estimates and
assumptions. Only real transactions between independent parties are evidence of "real" value,
but even then reflect the sentiment on the market.
There are various ways to define fair value.
KKO case Blomqwist bank denies its responsibility.
Question 17:
This is auditors job, why would we need another bureaucratic committee?
More bureaucracy usually does not increase the willingness to reveal more.
Question 18:
Banks dont do a good job explaining what they do and their reports are designed for
accountants. if you're not an accountant the reports are not clear.
I am a customer to several banks. Some of them are informing me very adequately, some not
at all, concerning their vulnerability of the crisis.
Banks are only interested in investors and big money. They do their best to not to have
normal customers in their offices. Old people can hardly anymore use their services. Banks
are not customer friendly. Even if you pay invoices by internet from home the bank charges
you service fees! Totally fed up with banks.

56